A sole proprietorship offers no liability separation and the simplest taxes. An LLC adds personal-liability protection with flexible tax treatment. An S-corp is a tax election (available to an LLC or corporation) that can reduce self-employment tax once profits are large enough to justify the added payroll and filing complexity.
The default structure if you start doing business without filing anything — no separate legal entity exists. Business income and expenses are reported on your personal tax return (Schedule C), and there's no liability separation: your personal assets are exposed to business debts and lawsuits. The SBA describes it as the simplest structure to start but the riskiest for personal liability.
A state-registered entity that separates the owner's personal assets from business liabilities — creditors and litigants generally can't reach your personal assets to satisfy business debts, with some exceptions (personal guarantees, fraud, unpaid payroll taxes). By default, a single-member LLC is taxed like a sole proprietorship ("pass-through" — no separate business-level tax), but an LLC can also elect corporate or S-corp tax treatment.
An S-corp isn't a business structure on its own — it's a tax election made with the IRS by an existing LLC or corporation. Under S-corp taxation, an owner who works in the business must pay themselves a "reasonable salary" (subject to payroll taxes), and any remaining profit can be distributed without self-employment tax — which is where the tax savings come from, once profit is high enough to outweigh the added payroll and filing costs. IRS guidance on S-corporations covers the eligibility rules.
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